Is it because of spoiled stuffing?

You sayin’ I’m stupid? Moi?

Economic illiteracy is just rampant this day after Thanksgiving. The latest example is found at convicted stock promoter Henry Blodget’s “Business Insider” whose editors foresee a huge “Keynesian” boost to the economy because of the damage wrecked by Hurricane Sandy.

Cataneo’s experience shows how the storm is giving the U.S. Northeast — and the rest of the country — an economic boost that may eventually surpass the loss of business it caused. Reconstruction and related purchases and hiring may range from $140 billion to $240 billion and increase U.S. economic growth by 0.5 percentage point next year, assuming $50 billion in losses, according to Economic Outlook Group LLC, a Princeton, New Jersey-based forecasting firm.

Do hurricanes, earthquakes (and even alien invasions, called for by Noble Prize winner and former Enron advisor Paul Krugman) really grow the economy? Should we raze Hollywood? Fire bomb Washington D.C.?  Tempting as that seems the answer, alas, for those who believe in magic beans, is no. This is merely a repetition of what has been known since 1850 as Bastiat’s Fable, or “the Broken Window Fallacy”. The argument in a nutshell: forcing an individual to spend money to replace what already exists diverts capital from new investments and business opportunities and creates a net loss, not a gain. The money and labor spent installing post-Sandy plywood window coverings is economic activity not spent somewhere else.

Here’s a portion of Bastiat’s original argument which, as noted, has been available to economic pundits for the past 162 years – too bad he didn’t publish it with cartoons:

Have you ever witnessed the anger of the good shopkeeper, James B., when his careless son happened to break a square of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation: “It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?”

Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier’s trade — that it encourages that trade to the amount of six francs — I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, “Stop there! Your theory is confined to that which is seen; it takes no account of thatwhich is not seen.”

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way which this accident has prevented.

Let us take a view of industry in general, as affected by this circumstance. The window being broken, the glazier’s trade is encouraged to the amount of six francs: this is that which is seen.

If the window had not been broken, the shoemaker’s trade (or some other) would have been encouraged to the amount of six francs: this is that which is not seen.

And if that which is not seen is taken into consideration, because it is a negative fact, as well as that which is seen, because it is a positive fact, it will be understood that neither industry in general, nor the sum total of national labor, is affected, whether windows are broken or not.


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3 responses to “Is it because of spoiled stuffing?

  1. AJ

    “….If debt doesn’t matter, then taxes aren’t needed at all
    Under the current system of unlimited spending, unlimited money creation and unlimited debt that “doesn’t matter” according to the bureaucrats in Washington, there is absolutely no reason why any so-called “revenue” needs to be collected from the working class population whatsoever. “Revenue” only matters if debt matters, and we’ve been told by everybody in Washington (except Ron Paul) that debt doesn’t matter.

    Logically, then, we need no income tax at all. The President could simply announce the elimination of all federal taxes and the closure of the IRS, then have the Fed print up the money it needs. No more income taxes… ever! Imagine the savings in paperwork reduction alone…

    This instant creation of money by the feds is not only possible, it has already been done. Remember the “too big to fail” bankster bailouts that began in 2008? Bailout totals have exceeded $2 trillion. Do you know where that money came from? The Fed created it out of thin air. They can do this any time they wish, of course. It takes about sixty seconds and a single computer entry at the Fed, matched by an inverse entry at the U.S. Treasury. In mere seconds, whammo! Another couple of trillion dollars (and debt) is magically created.

    The real purpose of the income tax? To oppress the economic mobility of the little people
    If the income tax is not mathematically needed to provide revenue to the federal government, what is its real purpose?

    As anyone who has deeply studied the social impact of the tax code well knows, the true purpose of the tax code is social engineering. And more specifically, to oppress wage earners and small business owners for the purpose of making sure they can never save enough money to stop working.

    The United States of America is, after all, a “tax farm,” meaning the productivity of the working people is harvested by the government to be used for whatever nefarious schemes the corrupt bureaucrats have in mind: Endless wars, creating economic dependence through welfare, giving money to their crony insider crooks, and so on.

    Besides, the last thing the elitists want is competition from upwardly mobile citizens who mistakenly think they can rise above their economic class and compete with the global elite. “The power to tax is the power to destroy,” Daniel Webster famously said in an 1819 U.S. Supreme Court case. Chief Justice Marshall agreed: “That the power to tax involves the power to destroy… [is] not to be denied.”

    And that’s the point of the income tax: To destroy the ambitions of the working class and keep them enslaved in a system of economic servitude that is mathematically designed to ensure permanent subjugation to the system.

    It has absolutely nothing whatsoever to do with creating “revenue” or….”


  2. Libertarian Advocate

    That Henry Blodget retains even a shred of credibility proves the truth of P. T. Barnum’s observation that nobody ever went broke underestimating the intelligence of the American people.

  3. kc

    I’m in New Orleans and I’m not an economist with relevant data at my fingertips but my reaction, based mostly on my perceptions and observations, to the theory that Sandy will function as some sort of public works program which will usher in a boom time was generally in line with your response, I think. Disasters like Katrina and Sandy do spread money around and obviously change shorter term priorities but it’s pretty hard to see a long term, continuing benefit to the economy. Granted, the Gulf Coast isn’t the same as the Northeastern corridor and the alternative was, more or less, to abandon large parts of the city, a choice that many New Orleanians were unwilling to make. Nevertheless, it seemed that the real hope was just to return the area to viability and then to see where we could go from there. A handful of people dreamed futuristic visions and some celebrities dropped by but many people just wanted their house back even if the rest of the neighborhood was gone. And a lot of people and businesses left and never came back. Some jobs were just gone. Obviously, other companies and individuals were attracted to the city as long as the money for home repairs and rebuilding was flowing and a few of them may even still be here. But I really can’t see how this grew the economy over the long term. It just shifted money from one endeavor to another that was deemed more pressing at the time. There were many temporary construction jobs created and some people worked for FEMA or some other government entity for awhile but at some point, this began to dry up and the need for permanent jobs based on a functioning economy became apparent. Of course, there were unexpected or indirect benefits. The tour operators seemed to do fairly well with the destruction tours and the motels outside of town seemed to be pretty full. All of your basic survivalist sort of supplies probably sold pretty well too. As did, I’m guessing, your lower tier beer brands. Avid consumers compared their favorite tire sales and repair shops and it probably reminded some people that New Orleans was, in fact, still down here. Politicians and and a variety of functionaries seemed to get some mileage out of it. (Just an aside but Ed Blakely is all over the news down here tonight. You may not know who he is but the people of New Orleans do. it’s being reported that he might be coming to help with the Sandy cleanup. Good luck with that.)